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Econ Final

Old Exams

Question

Answer

Other things being equal, the effects of an increase in the price of computers would best be represented by
which of the following?

A movement up along the demand curve for computers.

Which of the following expenditures would not be included in US GDP? Assume each good or service is
produced within US borders--Purchase of a new lawnmower.
b. Purchase of a silver cup previously sold new in 1950.
c. Purchase of a ticket to the late

the purchase of a silver cup previously sold new in 1950

Increasing opportunity cost is based on the idea that

most resources are better suited to producing some goods than others

Assume that Coca-Cola and Pepsi-Cola are substitutes. A rise in the price of Coca-Cola will have which of
the following effects on the market for Pepsi?

A rightward shift in the Pepsi demand curve.

Assume that brand X is an inferior good and name brand Y is a normal good. An increase in consumer
income, other things being equal, will cause a(an):

leftward shift in the demand curve for brand X.

Assuming that automobiles are normal goods, a rise in consumer income, other things being equal, will cause:

the demand curve for automobiles to shift to the right.

A demand curve for Miranda Lambert concert tickets would show the:

number of tickets that buyers are willing and able to purchase at various prices.

A shortcoming of GDP is that it does not reflect

the value of leisure, the value of goods and services produced at home, the quality of the environment.

At a price of $5, Sam buys 10 units of a product; when the price increases to $6, Sam buys 8 units. Martha
says Sam's demand has decreased. Is Martha correct?

No, Martha is incorrect. Sam's quantity demanded has decreased, and his demand has not
changed.

An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3,
respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP?

$140

Any point inside the production possibility curve is:

inefficient

A shift occurs in the supply curve for salt when:

improvements are made in the production process

If the opportunity cost of producing cheese is higher in Greece than it is in Italy, then:

Italy should specialize in producing the cheese (they have lower opportunity costs)

If in the process of calculating GDP, the market value of all intermediate goods is added to the market value
of all final goods, this would

overstate the actual value of GDP

Gross domestic product is defined as

the market value of all final goods and services produced within a country in a given
period of time.

If quantity demanded is greater than quantity supplied, then according to the market process:

the price will rise

A SHIFT in the demand curve example is...

increase in EXPECTED future prices

Which of these statements is a normative statement (as opposed to a positive statement)?

Gasoline prices ought to be lower than they are now, The federal government should raise taxes on wealthy people, The social security system is a good system and it deserves to be preserved as it is.

In economic terms, to say that there has been an increase in demand for a product means that:

consumers are now willing to purchase more of the product at each possible price.

A country is said to have a comparative advantage in the production of a good when it:

has a lower opportunity cost of producing that good

If two goods are complements, a(n):

decrease in the price of one product will cause an increase in the demand for the other
product.

Fertilizer is an input used to produce corn. If the cost of fertilizer rises, then the price of corn will:

rise

What shape is the production possibilities curve usually expected to exhibit?

bowed out

Real GDP is GDP

in base-year prices

In San Lucrinta, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 70 billion denars, government purchases of goods and
services were 80 billion denars, there were no transfer payments by the

consumption: 270 billion denars, Investment: 50 billion denars

Private saving=

Y (GDP) - T (Taxes) - C (Consumption)

Public Saving=

Taxes - Govt Spending

Saving=

Investing in closed economy!

Y (GDP)=

C + G + I

Consumer Price Index=

Cost of current year/ cost of base year X 100

Inflation rate=

CPI current year- CPI from previous year/ 100 x 100

Consider T-G and Y-T-C.

The first of these is public saving, the second one is private saving.

an increase in the physical capital stock per worker, an increase in human capital per worker, an increase in natural resources per worker

Which of the following is considered human capital?

what you have learned this semester

Suppose that in a closed economy GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the
government runs a surplus of $1 trillion. What are private saving and national saving?

$1 trillion and $2 trillion

Samantha goes to the grocery store to make her monthly purchase of ginger ale. She notices that the price of ginger ale has increased 15 percent, so she decides to buy some tea instead. To which problem in the construction of the CPI is this situation mos

substitution bias

If Canada increases its budget deficit, it will reduce

public saving and so shift the supply of loanable funds left.

A nation's standard of living is measured by its

real GDP per capita

Between 2004 and 2005, the country of Aquilonia reported an increase in the number of people who were
employed. It also reported an increase in the unemployment rate. Which of the following would best explain
the two reports?

There was an increase in the size of the labor force between 2004 and 2005.

Suppose some country had an adult population of about 25 million, the labor-force participation rate was 60
percent, and the unemployment rate was 6 percent. What were the number of people employed and the
number of people in the labor force?

14.1 million= people employed; 15= labor force

Suppose that in the small country of Sociopolis there are 6 million people in the adult population, that the
labor-force participation rate is 70 percent, and that there are 3.8 million people employed. What is the
unemployment rate?

9.5%

labor force participation rate=

labor force / adult population x 100

Which of the following is physical capital?

the equipment in a factory

The consumer price index is used to

monitor changes in the cost of living.

Stock represents ...

claim to a share of the profits of a firm, ownership in a firm, equity finance.

The economy's inflation rate is the

percentage change in the price level from the previous period.

The level of real GDP per person or per capita and the growth rate of real GDP vary...

widely across countries.

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Carmakers benefit from a new technology that allows them to sell higher-quality cars to, consumers with no increase in price.
b. Energy prices decrease, and consumers respond by buying more gas and electricity, A new good is introduced that renders cell

Unemployment insurance

reduces search effort and raises unemployment.

A person is unemployed if he

is a member of the civilian labor force, out of work, and actively seeking work.

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today.
Which of the following would you use to compute the price of the candy bar in today's prices?

five cents (today's CPI/1962 CPI)

Which of the following equations most simply represents GDP in a closed economy?

Y = C + I + G

Fred is considering expanding his dress shop. If interest rates rise he is

less likely to expand. This illustrates why the demand for loanable funds slopes
downward

The goal of the consumer price index is to measure changes in the

cost of living.

Let 2004 be the base year; then the inflation rate equation for 2005=

CPI 2005- CPI 2004 / CPI in 2004 x 100

The BLS defines the unemployment rate as the percentage of

the labor force that is unemployed.

Which of the following would a macroeconomist consider as investment? --a. Ernest purchases a bond issued by Star-Kist.
b. Jerry purchases stock issued by IBM.
c. Alice builds a new restaurant.
d. All of the above are correct.

c- Alice builds a new restaurant

A college student who is not working or looking for a job is counted as

neither employed nor part of the labor force.

Which of the following is a correct way to measure labor productivity?

divide output by the number of hours worked

The natural unemployment rate includes

both frictional and structural unemployment.

A country has $100 million of net exports and $170 million of saving. Net capital outflow is

$100 million and domestic investment is $70 million.

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is
implied by purchasing-power parity?

e = P*/P

f Y and V are constant, and M doubles, the quantity equation implies that the price level

doubles.

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises,
then

the nominal interest rate rises, but the real interest rate does not.

In the open-economy macroeconomic model, equilibrium is determined by the equality between the supply of dollars which comes from

U.S. net capital outflow and the demand for dollars for U.S. net exports.

Which of the following is included in both M1 and M2?

checking deposits... M1=everything you can carry in your wallet

Economic variables whose values are measured in monetary units are called

nominal variables

Suppose the U.S. imposes an import quota on steel. U.S. exports

decrease, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow
is unchanged.

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

fall from 10 to 5

If a U.S. resident wants to buy a foreign bond, his actions are included

in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-
currency exchange.

Velocity is computed as

(P x Y)/M

If the U.S. real exchange rate appreciates, U.S. exports

decrease and US imports increase

Savings deposits are included in

M2 not M1

According to the classical dichotomy, which of the following is not influenced by monetary factors?

real wages and real GDP

If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

appreciates and there is a trade deficit.

In the open-economy macroeconomic model, if the supply of loanable funds increases, the interest rate and the real exchange rate...

decrease.

Current U.S. currency is

fiat money with no intrinsic value.

When the money market is drawn with the value of money on the vertical axis, an increase in the money
supply

increases the price level and decreases the value of money.

The Federal Open Market Committee voting memebers include

5 Federal Reserve Regional Bank Presidents and all the members of the Board of
Governors.

The open-economy macroeconomic model includes

both the market for loanable funds and the market for foreign-currency exchange.

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is
P*, then the real exchange rate is defined as

e(P/P*)

The law of one price states that

a good must sell at the same price at all locations.

In the market for foreign-currency exchange in the open-economy macroeconomic model, a higher U.S. real
exchange rate makes

U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars
demanded.

If the U.S. price level is increasing by 3 percent annually and the Swiss price level is increasing by 5 percent
annually, by what percent would the exchange rate (francs/$) need to change according to purchasing power
parity?

increase by 2 percent

Suppose the same basket of goods costs $100 in the U.S. and 50 pounds in Britain. According to purchasing
power parity, what is the nominal exchange rate?

1/2 pound per dollar

The cost of changing price tags and price listings is known as

menu costs.

The money supply decreases if the Fed

sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

On a bank's balance sheet,

reserves are assets, deposits are liabilities

Which of the following lists two things that both decrease the money supply?